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I would like to vote for the second option. NO, I use vendor provided kernel packages. If you have a low-end system then configuring the kernel may help speed up boot time. This was a nice opinion poll on the subject.

10 or 15 years ago I always recompiled my kernel (originally you had to just to add a device). About 5 years ago I found I was doing it less often. Modularisation and custom patches in the vendor kernels reduced the need. These days I only recompile my kernel if I need to.

How could having a bleeding edge kernel with the crap you don't need stripped out, with fixes, etc not be worth it? Obviously, you don't know what you're talking about.

I compiled custom kernels from when I first started using Linux up to now, and it even sped Ubuntu up. So far, I have found that the Zen Kernel from http://zen-sources.org is the fastest. They have so many extra features that aren't included in mainline that it's insane how big of a performance increase it gives me.

Just for example, my kernel image is only 500k and I boot in 11 seconds. How's that for no benefit, smart guy?

compiling a kernel is easy and doesn't take that long. Hell, it's one of the first things I'd have to do when installing gentoo. Using menuconfig or genkernel is easy, and you can compile your own 64-bit kernel no problems. (I have no idea where you'd get the idea that you can't compile your own 64bit stuff -- linux is open source and ported to practically everything).

In addition to optimizing the kernel to your hardware, compiling your own kernel lets you do things that might not be in the precompiled one you recieved; for example, most distos don't ship with the ability to write to NTFS partitions. If you needed that, you'd have to compile your own kernel. There are tons of cool things that you can compile in that often aren't part of the kernel, so if you're not compiling it yourself, you may be missing out on some nice options.

As a fellow gentoo user (even a noobisch one ^^)
I have to agree. Once you know how to do it, it is easy.
I do not know if this gives a performance boost or just that you are only
installing stuff that you really need but my gentoo is atm really fast
(beside no functional hardware acceleration) compared too a slipstreamed windows xp
or a optimized ubuntu or openSUSE.

go to the tips/fixes/howtwos section, I have a howtwo on compiling easier than the aforementioned for ubuntu users - :) I don't do the module thing altho I do use the modules (I think) from the gutsy main kernel. I really should trythe module thing sometime, also my tutorial does NOT do restricted modules either, it's pretty basic.

for a desktop, compiling the kernel, is not that important.
But if you are working with a embedded linux, then there will be too many things to try out. so cross compiling the kernel is a must, in such a senario.

The only change will be u need a toolchain, specific to your architecture, for cross compiling.